As it passed a tentative budget for 2013-14, the Ephrata Area School District took a look even further down the road, detailing what appears to be a rather rocky financial ride over the next four years.

The preliminary budget passed at the May 13 school board meeting calls for a 2.06 percent increase over funding levels from 2012-2013. This also calls for a .40 mil increase in taxes.

But the news gets worse. With projected cuts in funding, coupled with increases in district obligations all coming together concurrently, district leaders are planning for the future by projecting an average 2 percent increase in taxes for each of the next four years. Despite this increase in revenues, district projections take the school system from a budget surplus of $448,097 during the current school year to a budget deficit of $398,976 in 2013-2014. And that $847,073 swing from black ink to red only grows with time, with projected a projected budget deficit of $2,036,731 in 2014-2015, $3,026,380 in 2015-2016, and $3,731,965 in 2016-2017.

The district said one main cause for the forecasted fiscal challenges is PSERS (Public School Employees Retirement System) obligations. School board president Tim Stayer commented on this challenge.

"We’re experiencing three years of $1 million-plus increases for PSERS for which we will not be able to generate enough new revenue," stated Stayer. "Our Act 1 limit is approximately $750,000 through tax increases. But the community is not welcoming any additional tax increases. Meanwhile, operating costs continue to rise. It’s frustrating and will become more so in the years ahead."

When asked if there was anything taxpayers should know or understand with regard to the budget for the coming year, Ephrata Area School District Business Manager Kristee Reichard said, "The District did not have to curtail any of its programs. Efforts have been focused on keeping K-2 class sizes at Board-recommended levels. The Fund Balance is what is allowing the District to avoid furloughs and curtailments. It is allowing us to smoothly get through PSERS and healthcare cost increases instead of having to jump off a cliff. The Fund Balance is also helping the District through reduced Basic Education funding from the state and increasing costs for Special Education."

The preliminary budget calls for revenues of $57,581,249, which fall short of projected expenditures of $57,980,225.

If adopted at the current levels, the tax increase would amount to an increase of $40 per $100,000 in assessed real estate value. District data indicates the average local home has an assessed value of $137,685. That data also pointed out that of the real estate located within the district, the lions share, 90.74 percent is residential. Commercial property makes up the next largest percentage at 5.19 percent. It is projected that there will be 12,101 taxable properties located within the district for the next school year. Stagnant property values and a region which is largely comprised of residential property could likewise be a contributing factor to the funding challenges. Property tax revenues under the current proposed budget are projected at $34,914,824.

But not all the news is bleak with regard to the proposed budget.

Stayer said that while it was difficult to propose a budget which included a tax increase, it was reflective of the district’s efforts to run as lean a budget as possible.

"Under Act 1, the max the district could have proposed, had they had applied for exceptions (which they did not), was a 9.62 percent increase which would have been a 1.86 mill tax increase," Stayer pointed out. "Our budget comes in considerably better at at 2.06 percent increase and a .40 mill tax hike."

Stayer also commented on the myriad of efforts the district has already undertaken to trim costs to the bone.

"The administration has implemented many measures to help control costs," explained Stayer. "Those measures included such things as a restriction on overtime, change to the Lincoln Benefit Trust to administrate our employee health insurance (2012), consortium purchasing, select and careful purchasing of utilities (gas, diesel, etc.), conversion of high school boilers from fuel oil to gas, managed use of the HVAC systems, maintaining the same budget for building educational supplies for six years now, careful evaluation of all new hire and/or replacement hiring of staff, wiser use of staff, evaluation of support programs and resources (paper supplies to photo copiers, etc.). There are continuous efforts and initiatives by the district and building administrative teams to control costs and expenses – a primary reason for much of our recent success in budgeting, and not having to file/apply for exceptions to Act 1."

Reichard said that faculty and administrative contractual obligations remain in place through the 2014-2015 school year.

In presenting its budget, the district outlined key challenges which not only the local district must deal with, but all school districts face. For each of the next three years, districts will face significant increases in the money needed to fund PSERS. Funding at the state level has been quite unstable in recent years and appears it will remain unstable into the foreseeable future. Economic conditions remain unstable and uncertain. Special education costs continue to rise, as do utility and benefit costs.

"Operating costs will continue to increase beyond the limit of new revenue we are able to generate," explained Stayer. "These are routine expenses such as wages, supplies, utilities, insurance, and so forth. Also a host of unfunded mandates continue. One example would be special education and education for children with special needs. We want all children to receive an education, however one area that continues to grow is the cost associated with special needs children and education. We receive only about one-third of our the actual cost from the state. We are obligated to do it and want to educate all children, but we need additional funding from the state. The legislature passed a new act and the Governor has signed it to look at how special education is funded in PA – we hope they improve the process."

It was also pointed out that through the past several years the district has worked hard to limit staffing cuts through attrition caused by retirements and resignations. However, several years into the policy, the district now finds itself operating at minimum staffing levels if the programs and educational priorities are to be maintained. Any future staff reductions would require curtailment of various programs districtwide.

And while the district has actively sought to reduce staffing levels naturally without furloughs, at the same time the district has seen sharp increases in enrollment, especially in kindergarten and first grade. This situation may require the district to concurrently consider both increased class sizes as well as an increase in staffing to meet the need.

With regard to staffing, the district employs a total of 283 teachers. Of those Ephrata teachers, 65.5 percent have earned masters level degrees or even higher and have served an average of 15.36 years in the district. Currently, the district enjoys a pupil teacher ratio of 18.5:1. The district employs 146 aids and support staff and 19 administrators.

Yet, while the district has maintained proper staffing levels as a priority, Stayer indicated officials may be running out of options to prevent furloughs down the road.

"Should the state budget continue to be so lean, Act 1 limits remain the same and/or be reduced, we could very well face (furlough) issues in the next several years," noted Stayer. "At this point in time, we’re in reasonably good shape. However, as the budget proposal illustrates for the years ahead, that picture could change in the near future."

Local sources of school revenue include the $34,914,824 in real estate taxes, another $3,140,000 from the Earned Income Tax and $2,754,349 in other local sources. State funding brings the district $8,686,957 from the basic education subsidy, $192,517 from Accountability Block Grant funding, $2,035,116 in special education funding (against projected special education costs of $6,779,532), $1,024,041 in property tax relief among others. Federal funds only account for $749,419.

On the expenditure side, the district projects administration salaries of $2,154,913, $18,151,262 in professional staff, $3,944,074 in support staff and $550,000. Benefits, including employer taxes, retirement funding and insurance will cost the district another $12,302,779. Transportation is projected to cost $2,032,600 while utilities are expected to cost $1,760,250 and debt service $6,618,000.

The district says it has worked hard to keep expenditures low, yet has found that path to be a challenge. Even with a net loss of 4.5 jobs through attrition, the district did have to replace 14 positions, albeit at a reduced rate. With the increased class sizes, especially in kindergarten and first grade, the district anticipates it will need an additional three elementary professional staff members and one additional special education professional. As kindergarten enrollment remains open, the impact on incoming new kindergarten students is still unclear. The cost of servicing retirement plans (PSERS) is up 16.93 percent or an increase of $1,140,000. Health insurance costs are up 9 percent, an increase of $512,986. Special education costs are up $340,000.

Stayer pointed out that the actual operating budgets for each of the districts buildings have remained unchanged for the past six years.

For the coming year, the district plans to balance the budget through a combination of tax increases and a transfer from the district’s fund balance of $398,976.

"The purpose of the fund balance is to cover ‘one time’ expenses not budgeted for in any other accounting category," stated Stayer. "That would include capital expense not budgeted in capital improvements, or revenue delays from the state or local distributions and various unforeseen factors. It is not there to mask the true cost of running the school district."

Stayer said that maintaining a fund balance was critical to the long-term running of the school district. He pointed out that a fund balance has a significant impact on the district’s credit rating.

"Having little or no fund translates into the district being a high risk and having a poor credit rating," explained Stayer. "This also then effects the cost of borrowing and the district’s credit worthiness."

He added that reserve funds are in place to help deal with those unplanned emergencies and act as a financial security net.

"This year we are able to manage through the budget limitations and challenges without a significant change in the educational programs and wide range of activities we are able to offer," added Stayer. "But beginning next year, if all things remain unchanged, we’ll need to carefully begin reviewing and evaluating programs offered, size of classes, number of staff, etc. similar to what other districts are facing as well."

Copies of the proposed budget are available for public review by contacting the school district office.

Additional information with regard to the school district can also be found on the district website, easdpa.org. Gary P. Klinger welcomes your comments, questions and suggestions via e-mail at www.klingerglobal@gmail.com.